Termination
of Employment

Tan Chuan Thye and Elizabeth Wong examine the
termination of employment where the Employment Act (Cap 91, 1996 Ed) does not
apply.

General

Introduction

Singapore's employment (or labour) law and practice is a combination of
common law and statute law. While cases from other jurisdictions are helpful,
care should be taken when considering them as they are usually decided in a
legislative and policy framework particular to their own jurisdictions.

The main legislative provision is the Employment Act. The Employment Act
addresses several aspects of the employer-employee relationship and stipulates
certain minimum terms and conditions of employment. The Employment Act applies
to all employees as defined in the Employment Act with the exception of seamen,
domestic servants, government employees or any person employed in a managerial,
executive or confidential position. In addition, Part IV of the Act governing,
inter alia, rest days, hours of work, holidays, retrenchment and retirement
payments, applies only to employees whose salaries do not exceed S$1,600 per
month. In this article, we look at situations where the Employment Act does not
apply.

Termination Without Notice

Fixed-term contract

A contract of employment which is expressed to be for a specified project or
period expires when the project is completed or the period expires. This is
strictly not the same as the termination of employment. It has been ruled that
the word 'terminated' requires some positive act on the part of the employer to
end the employee's employment, such as actively making an employee redundant (Teachers Pension Agency v Hill (The Times, 12 June 1998)).

Employer's financial circumstances

The appointment of a receiver by the court automatically terminates all
contracts of employment between a company and its employees. It is immaterial
that the receiver continues to carry on the business temporarily since he does
not do so as agent for the company. On the other hand, the appointment by
debenture holders or mortgagees of a receiver to act as an agent of the company
does not operate to terminate existing contracts of employment, unless:

the appointment is accompanied by a sale of the business of the company;

simultaneously with, or very soon after, the appointment, the receiver
enters into a new agreement with a particular employee which is inconsistent
with the continuation of his previous contract of service; or

the continuation of a particular employee's employment is inconsistent
with the role and functions of the receiver and manager.

The law is summarised in Griffiths v Secretary of State for Social
Services [1974] QB 468.

However, if the receiver is appointed to act as agent for the debenture
holders, the appointment will terminate the company's contracts of employment (Hopley-Dodd
v Highfield Motors (Derby) Ltd (1969) 4 ITR 289).

It is not settled whether the appointment of a judicial manager automatically
terminates the contract of employment. (The point is dismissed in Woon, Company
Law (2nd Ed) at page 650. In England, the appointment of an administrative
receiver does not result in automatic termination: Powdrill v Waton
[1996] 1 BCLC 386.) Insofar as the judicial manager is the agent of the company
and has to continue its business, it may be thought that the appointment is not
an automatic termination.

Where an employer is insolvent and is the subject of a compulsory winding-up
order or a resolution to wind up, the order or resolution operates to terminate
all contracts of employment between the company and its employees (Re Mack
Trucks (Britain) Ltd [1967] 1 All ER 977).

Frustration of the employment contract

A contract of employment can be frustrated where there is a supervening event
that renders the employer or the employee unable to perform his obligations
under the contract. The decided cases show that a serious illness or accident
befalling the employee, or his imprisonment, can amount to frustration.

It is a difficult question of fact whether the circumstances are sufficiently
serious to warrant finding that the contract has been frustrated. By way of
guidance, case law has suggested the following factors for consideration in the
situation of an employee being taken ill (Marshall v Harland & Wolff Ltd
[1972] 1 WLR 899 at page 903):

the terms of the contract, including any provisions as to sick pay;

the length of time the employment was likely to last in the absence of
sickness;

the nature of the employment, in particular, whether the employee was in a
key post which had to be filled permanently if his absence was prolonged, or
whether it could be held open for a considerable time;

the nature of the illness or injury, its period and the prospects for
recovery; and

the past period of employment - a longstanding relationship being less
easily destroyed.

The factors outlined above 'are inter-related and cumulative, but are not
necessarily exhaustive of those which have to be taken into account'.

In Chakki v United Yeast Co Ltd [1982] 2 All ER 446, where the
employee was imprisoned, the court took into account factors such as when it was
necessary for the employer to consider if a replacement would have to be
engaged, the likely length of the employee's absence and if a replacement had to
be engaged, whether it was reasonable to engage a permanent replacement rather
than a temporary one. (There are two inconsistent decisions of the Malaysian
courts in this area - the court in Sathiaval a/l Maruthamuthu v Shell
Malaysia Trading Sdn Bhd [1998] 1 MLJ 740 distinguished Subramaniam v
Esso Malaysia Bhd [1990] 3 MLJ 118, where a different conclusion was reached
on similar facts.)

Where employment depends upon an employee meeting statutory criteria, the
contract terminates when he is unable to meet the criteria (see Tarnesby v
Kensington and Chelsea and Westminster Area Health Authority (Teaching) [1981]
ICR 615, where it was held that the loss of registration as a medical
practitioner automatically terminated the employee's contract of employment).

Termination by Notice

Generally

An employer must be careful to issue termination letters in the correct form.
The Court of Appeal has held that in a situation where the notices of
termination were typed on the letterhead of the employer's affiliated company,
no valid notices of termination had been given as the notices had been issued by
an entity with whom the employees had no contractual relationship whatsoever (Alexander
Proudfoot Productivity Services Co S'pore Pte Ltd v Sim Hua Ngee Alvin and
another appeal [1993] 1 SLR 494, where the court noted that the effect might
have been different if the notices had been issued on behalf of the employer
although the letterhead used was that of the affiliated company).

Where a notice is validly given to terminate a contract of employment, there
will usually not be an enquiry into the reasons or the motives for the
termination. However, the recent local case of Noor Mohamed bin Mumtaz Shah v
Apollo Enterprises Limited (DCA 34/1000, unreported) is a reminder that this
is not always so. The employee in this case was employed for almost 25 years by
the employer when his services were terminated on one month's pay in lieu of
notice. Under a collective agreement, the employee was entitled to redundancy
payments. The employee claimed that the employer had disguised his dismissal as
a termination in order to avoid paying him the redundancy benefits under the
applicable collective agreement. The employer argued that as a matter of law,
they were entitled to terminate the employment with one month's pay in lieu of
notice as provided in sections 10 and 11 of the Employment Act.

Lee Seiu Kin JC held that if an employee is dismissed in circumstances where
a redundancy results and that employee would have been entitled to redundancy
payments if he had been retrenched instead, there is a presumption that the
dismissal is on the ground of redundancy. The onus then shifts to the employer
to show that the dismissal was not solely or mainly due to redundancy. It would
otherwise be all too easy for employers to escape their legal obligation to pay
the redundancy benefits to which employees are entitled.

On the facts, the court allowed the employee's claim for redundancy payments.

Common law

Contracts usually specify the period of notice. In the absence of any express
stipulation as to duration or expiry, every contract of employment is treated as
determinable by reasonable notice.1

The question as to what is a reasonable period of notice is one of fact,
depending on all the circumstances of the case and the nature of the employment.
In Bramble v Medis Health and Pharmaceutical Services Inc [1999] 175 DLR
(4d) 385, the court held that the primary object of notice is to provide the
terminated employee with a reasonable opportunity to seek alternate suitable
employment. In determining what constitutes reasonable notice of termination,
the courts have generally considered four factors: the character of employment,
the employee's age, the length of service, and the availability of similar
employment.2

In the absence of any stipulation to the contrary, there is no obligation for
notice to be given in writing (Latchford Premier Cinema Ltd v Ennion
[1931] 2 Ch 409). The normal rule is that once notice has been given effectively
by either party, it may not be withdrawn unilaterally. Accordingly, withdrawal
of notice may be by mutual consent only (Harris and Russell Ltd v Slingsby
[1973] 3 All ER 31).

In practice, it is accepted for an employer to give the employee wages in
lieu of notice even if the contract does not provide for this. This is based on Konski
v Peet [1915] 1 Ch 530.3 However, the decision in Konski v Peet
should be contrasted with that in Heron, Gethin-Jones & Liow v John Chong
[1963] MLJ 310, where the Singapore Court of Appeal took the view that there was
usually no need to imply that a contract of employment could be terminated by
the payment of salary in lieu of notice (note, however, that the case of Konski
v Peter [1915] 1 Ch 530 was not cited to the court).

As a practical matter, it should be noted that CPF contributions are not
payable in respect of the sum paid in lieu of notice.4

Age

The Retirement Age Act (Cap 274A) prohibits employers from dismissing
employees (whether or not they come within the Employment Act) below 60 years of
age, or the prescribed retirement age (presently 62 years), on the ground of
age. The Act, however, does not take away the employers' right to dismiss
employees for poor performance, ill health, or misconduct.

An employee will be treated as dismissed by his employer if:

the contract under which he is employed by the employer is terminated by
the employer whether it is terminated with or without notice; or

the employer retires the employee, or requires or causes that employee to
retire or resign on the ground of age.

The Retirement Age Act also provides that any term of a contract of service
or collective agreement will be void in so far as it purports:

to exclude or limit the operation of any provision of the Act; or

to preclude any person from making a representation, claim or application
under the Act.

The scope of the Act has been, however, limited by the Retirement Age
(Exemption) Notification, which exempts 22 groups of employees from the
protection of the Act.

Garden Leave

An issue that arises in practice is the position of an employee during the
period between his giving notice and the expiry of the notice period. It is
common for an employer to ask the employee to stay at home during the period. An
employer may take this course of action, rather than waive the notice, as he
wishes to ensure that the employee does not go to work for a competitor during
that period and/or to give that employee's replacement time to take over his
contacts and business. Contracts usually provide an employer with this right.

It is settled law that the contract remains in place during the period of
notice. If the employee acts inconsistently with the contract, the employer will
want to injunct the employee. The court will have regard to the need of the
employer for protection, questions of confidential information, possible
detriment to both parties and the nature of the employment that the employee
wishes to take up (Provident Financial Group plc v Hayward [1989] 3 All
ER 298).

This is further elaborated by Mehigan & Griffiths in Restraint of
Trade and Business Secrets (3rd Ed) at page 278, where the learned authors
identify the following as the principal considerations:

That the employer has not accepted the employee's
repudiatory breach.

That the employer has not agreed to provide the employee with any
particular type of work. If there is such an agreement and the employee is
required to be on 'garden leave', he can argue that the employer has
repudiated the agreement. …

That the employee will receive the same salary and benefits whilst on
garden leave as he would have done if he had remained at work. Unless there
is an express provision dealing with the point, this means that he must be
able to participate in any bonus scheme during the relevant period. The
difficulty with an express provision which excludes any right to a bonus is
that its existence may militate against the grant of an injunction. It may,
however, be most prudent to include a clause which says that the employee
agrees that he cannot complain that any bonus payable to him may be less
than it would have been by reason of his non-attendance at work.

That the employer can demonstrate existing or likely detriment. In
[Provident Financial Group plc v Hayward] it was said that fostering the
profitability of a trade rival can constitute detriment: one obvious way in
which that can exist is if the employee possesses confidential information
which may be of use to his employer's competitor.

That the period for which the garden leave is sought is not excessive.

That the employee is not engaged in an activity where to grant a garden
leave injunction might deprive him of future work or if his skills might
atrophy during the relevant period.

In William Hill Organisation Ltd v Tucker (The Times, 8 April 1998) (see also
article by Meriel Schindler at [1998] Sol Jo 736), it was argued that
enforcement of the notice period would be contrary to the employee's right to
work. The court said that the question had to be answered by construing the
contract of employment in the light of its surrounding circumstances. Having
done so, the court concluded that the contract did give rise to a right to work.
Three factors led the court to this conclusion:

the employee's position was specific and unique;

the employee's skills required frequent exercise to preserve and enhance them;
and

if the employer could prevent the employee from working, this would be
inconsistent with the express term of the contract that the employer was
'prepared to invest in its staff to ensure that they have every opportunity to
develop their skills'.

The Court of Appeal further commented, obiter, on the approach which it felt
that the courts should adopt when considering applications for garden leave
injunctions. It suggested that a garden leave clause did not give an employer
greater protection than a justifiable covenant in restraint of trade.

Summary Dismissal

An employer has a common law right to dismiss an employee without notice on the
grounds of the employee's gross misconduct. Such dismissal is not wrongful. This
right is explained in contractual terms as the acceptance by the employer of a
repudiation of the contract by the employee (see Boston Deep Sea Fishing and Ice
Co v Ansell (1888) 39 ChD 339 and Pepper v Webb [1969] 2 All ER 216; previously,
the right to summarily dismiss was explained as a legal incident of the status
of master and servant).

An employer faced with a repudiatory breach has the option of accepting the
breach and dismissing the employee, or affirming the contract. Thus, an employer
who, with full knowledge of the employee's misconduct, elects to let him
continue in service cannot subsequently dismiss him for the misconduct which the
employer has condoned (see Horton v McMurtry (1860) 5 H&N 667; Bond v CAV
Ltd [1983] IRLR 360).

There is no common law right for an employee to be given reasons for his
dismissal by his employer (see Halsbury's Laws of England (4th Ed Reissue) at
Volume 16, paragraph 299).

Factors giving rise to summary dismissal

Whether or not an employer is entitled to dismiss summarily depends on whether
the misconduct was sufficiently grave to amount to a repudiation by the employee
of the contract of employment (General Billposting Co Ltd v Atkinson [1909] AC
118).

This is a question of fact in any particular case (Jupiter General Insurance
Co Ltd v Shroff [1937] 3 All ER 67). An employer has to conduct an inquiry
before summarily terminating an employee's contract of employment, but a failure
to do so is curable by an inquiry before an adjudicating body (see Sil Ad (Johor
Bahru) Sdn Bhd v Hilton Oswald Franciscus [1998] 3 CLJ 233). Previous case law
is of limited precedent value (Wilson v Racher [1974] IRLR 114). However, the
following instances are probably sufficient grounds for dismissal: disobedience
to instructions,5 misconduct6 and conduct incompatible with the faithful
discharge of the employee's duty to his employer.7

Grounds for dismissal discovered subsequently

The common law rule relating to wrongful dismissal is that, provided good cause
for dismissal in fact existed, it is immaterial whether or not it was known to
the employer at the time of dismissal.8

A summary dismissal can therefore be justified by facts only ascertained by
the employer subsequent to the dismissal, and on a ground different from those
alleged at the time (Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 ChD
339).

In Edward Bruce Cowie v Berger International Private Limited [1999] 3 SLR
491, the Singapore High Court held that it was established law that where an
employee has in fact been guilty of uncondoned misconduct so grave as to justify
instant dismissal, the employer can rely on that misconduct in defence of any
action for wrongful dismissal, even if at the date of the dismissal, the
misconduct was not known to the employer.

Wrongful Dismissal at Common Law

Meaning of 'wrongful dismissal'

A wrongful dismissal is a dismissal in breach of the relevant provision in the
contract of employment relating to the expiration of the term for which the
employee is engaged (Halsbury's Laws of England (4th Ed Reissue) at volume 16,
paragraph 302).

To entitle the employee to sue for damages, two conditions must normally be
fulfilled:

the employee must have been employed for a fixed period or for a period
terminable by notice, and dismissed before the expiration of that fixed period
or without the requisite notice, as the case may be; and

his dismissal must have been wrongful, ie without sufficient cause to permit
his employer to dismiss him summarily.9

Remedies

Enforcement of the contract

There is a normal rule of practice that a court will not enforce a contract of
employment either by way of specific performance, or by the granting of an
injunction that would have a similar effect, or by way of granting a declaration
that a contract still subsists.10

An employee who has been wrongfully dismissed will, therefore, normally have
to accept the repudiation and sue the employer for damages. However, the
advantage of accepting the employer's repudiation is that the employee may
thereby claim to be released from obligations on himself under the contract,
especially a restraint of trade clause (General Billposting Co Ltd v Atkinson
[1909] AC 118, Briggs v Oates [1991] 1 All ER 407 and Rock Refrigeration Ltd v
Jones & Anor [1997] 1 All ER 1).

Damages

A wrongfully dismissed employee must normally accept the repudiation and sue the
employer for damages. He cannot simply wait until the termination of the period
for which he was engaged and sue in debt for the whole of the remuneration which
would have been due (Fewings v Tisdal (1847) 1 Exch 295 and Denmark Productions
Ltd v Boscobel Productions Ltd [1969] 1 QB 699).

An employee who has been wrongfully dismissed is entitled to recover
estimated pecuniary loss resulting from the premature determination of his
service. He is only entitled to claim for the sums which he was contractually
entitled to receive, but not that which he probably would in fact have received
(Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 and Micklefield v SAC
Technology Ltd [1990] 1 WLR 1002, where a loss of share option was not
recoverable).

This point was recently affirmed by the Singapore Court of Appeal in the case
of Scott Latham v Credit Suisse First Boston (Suit No 2048/97, unreported). The
relevant clause provided that 'a bonus may be paid to you at the end of each
calendar year'. The court held that proper construction of the contract
indicated that the decision to grant a bonus was entirely at the discretion of
the employer. Even if the employee had continued to be employed, he would not
have a legal right to claim a bonus from the employer. Unless the bonus had been
expressed to be guaranteed, an employee could not claim to be legally entitled
to a bonus, the granting and quantum of which are entirely at the discretion of
the employer (cf Clark v Nomura International plc (2000, unreported) where the
English High Court held that a bonus scheme described as discretionary created a
contractual obligation on the employer to exercise its discretion in a way which
is not perverse or irrational).

In the case of a fixed term contract, the starting point is the remuneration
for the remainder of the fixed term. However, most contracts are determinable by
notice so that the employee is entitled to recover only the amount of
remuneration during the notice period (Addis v Gramaphone Co Ltd [1909] AC 488).

Employee's duty to mitigate

As the action is for breach of contract, not debt, the employee is under a duty
to mitigate his loss (Goh Kim Hai Edward v Pacific Can Investment Holdings Ltd
[1996] 2 SLR 109 at page 147).

If the employee obtains employment during the period relevant for the
purposes of the calculation of damages, amounts earned must be deducted from the
damages (Re Imperial Wine Co, Shirref's Case (1872) LR 14 Eq 417 and Reid v
Explosives Co (1887) 19 QBD 264). If the period relevant for the purposes of
calculation of damages is still running at the time of trial, the court may make
a deduction for possible future mitigation (Edwards v Society of Graphical and
Allied Trades [1971] Ch 354; [1970] 3 All ER 689).

If it can be shown that the employee could with reasonable diligence have
avoided a loss, his damages may be reduced accordingly (Beckman v Drake (1849) 2
HL Cas 279). Therefore, if the former employer can show that the employee could
reasonably have obtained suitable employment at similar wages soon after his
dismissal, the employee may recover only nominal damages (Brace v Calder [1895]
2 QB 235 and Re Gramaphone Records Ltd [1930] WN 42).

The question of what are reasonable steps to take to mitigate loss is one of
fact in all the circumstances of the case and must be considered realistically.

Constructive Dismissal

An employee who terminates the contract of employment, with or without notice,
may still claim to have been dismissed if the circumstances are such that he is
entitled to terminate it without notice by reason of the employer's conduct.

An employee seeking to rely on constructive dismissal must show that the
employer was guilty of a repudiatory breach of contract, not simply of
unreasonable conduct (Western Excavating (ECC) Ltd v Sharp [1978] QB 761). In
the Malaysian case of Anwar bin Abdul Rahim v Bayer (M) Sdn Bhd [1998] 2 MLJ 599
at page 605, the Court of Appeal held that the proper approach in deciding
whether constructive dismissal has taken place is not to ask whether the
employer's conduct was unfair or unreasonable, but whether the conduct of the
employer was such that the employer was guilty of a breach going to the root of
the contract or whether he has evinced an intention no longer to be bound by the
contract (see also Christoph Hoelzi v Langkawi Island Resort Sdn Bhd [1998] 6
MLJ 162 at page 168).

The employee must leave in response to the breach of contract and indicate
that he is treating the contract as repudiated. Delay in so doing may amount to
waiver of the breach and affirmation of the contract though this will depend on
the facts of the case. In the case of Weathersfield Ltd v Sargent (The Times, 31
December 1998), the English Court of Appeal held that the fact that an employee
left her employment without giving reasons did not preclude her from claiming
that she had been constructively dismissed, although such conduct would usually
make it more difficult to make out a case of constructive dismissal. The court
arrived at this conclusion in recognition of the fact that for many employees,
the more outrageous or embarrassing the instructions given to them, or
suggestions made to them, the less likely they might be to argue the point there
and then. They might wish to remove themselves at the first opportunity and with
a minimum of discussion.

Whether there has been a repudiatory breach by the employer entitling the
employee to leave is essentially a question of fact in the circumstances of each
individual case. Reported cases should not be regarded as precedents (Halsbury's
Laws of England (4th Ed Reissue) at volume 16, paragraph 321, page 332). They
are, however, useful as illustrations. Demotion (Abdul Rahim Jemali v Merlin
Management Corp Sdn Bhd & Anor [1997] 4 MLJ 422; cf Christoph Hoelzi v
Langkawi Island Resort Sdn Bhd [1998] 6 MLJ 162 at page 168) and the unilateral
decision to cut pay (Amanah Butler (M) Sdn Bhd v Yike Chee Wah [1997] 1 MLJ 750)
are two of the more common grounds of constructive termination. Other grounds
include a failure to pay wages, a change of job content not permitted or
envisaged by the contract, undermining a senior employee's position, change of
the place of work, or breach of a mobility clause whether express or implied,11
unilateral change of hours, failure to ensure employee's safety, breach of the
implied term of trust and respect, failure to follow a contractually binding
disciplinary procedure and imposition of a disciplinary measure in a
disproportionate manner.

Tan Chuan Thye & Elizabeth Wong
Allen & Gledhill

Endnotes

1 In the Singapore High Court decision of Low Pu Tong v Housing and Development
Board [1990] SLR 1019, the court held that it is settled law that to be placed
on the permanent establishment did not mean that the employee would have
security of tenure for life ending on his retirement. How his contract of
service may be terminated had to be decided on the relevant rules and
regulations that applied to the particular contract of service.

2 However, the New Brunswick Court of Appeal in this case held that judicial
notice should no longer be taken by Canadian courts of the impact of the
character of the terminated employee's job on his or her quest for suitable
alternate employment. In the court's view, the proposition that junior employees
have an easier time finding suitable alternate employment, and that senior
employees required more time to find suitable alternate employment, is no longer
a matter of common knowledge. It remains to be seen if this novel approach will
be followed by the courts in Singapore.

3 In Abrahams v Performing Rights Society Ltd (The Times, 5 May 1995), the court
held that the payment in lieu of notice was a contractual entitlement rather
than a claim for liquidated damages and, consequently, there was no duty on the
employee to take steps to mitigate his loss, and payment could not be reduced on
the basis that he had in fact mitigated the loss.

4 Section 7 of the Central Provident Fund Act provides that CPF contributions
must be made in accordance with the rates set out in the First Schedule to the
Act, ie based on the quantum of an employee's wages. 'Wages' is defined to mean
the remuneration in money, including any bonus, due or granted to a person in
respect of his employment. The CPF Board views salary in lieu of notice as a
benefit which is paid as compensation for loss of payment (see Employers'
Questions About CPF Contributions (May 1997), page 15).

9 There may also be cases where the contract of employment limits the grounds on
which the employee may be dismissed (McClelland v Northern Ireland General
Health Services Board [1957] 2 All ER 129) or makes dismissal subject to a
contractual condition of observing a particular procedure (Gunton v
Richmond-upon-Thames London Borough Council [1981] Ch 448). In such cases, it
may be argued that, on a proper construction of the contract, a dismissal for an
extraneous reason or without observance of the procedure is a wrongful dismissal
on that ground.

10 Francis v Municipal Councillors of Kuala Lumpur [1962] 1 WLR 1411 PC. This is
partly on the grounds of the difficulty of policing any such court order and
partly on the grounds of the personal nature of a contract of employment (De
Francesco v Barnum (1890) 45 ChD 430 and CH Giles & Co Ltd v Morris [1972] 1
All ER 960).

11 Note, however, that there will not be constructive dismissal if it is
expressly provided in the employment contract that the employee may be
transferred from one location to another: Chua Yeow Cher v Tele Dynamics Sdn Bhd
[2000] 1 MLJ 168.